The Billion Dollar Battle for Snapchat

By Karl Taro Greenfeld with Billy Gallagher

Photography by Dan Saelinger

February 25, 2014

When then 18-year-old Evan Spiegel, future founder of Snapchat, the multibillion-dollar mobile application start-up, set off on the seven-hour drive up Interstate 5 from Pacific Palisades to Palo Alto, California, home of Stanford University, he was embarking on more than a college education. He was journeying into the engine room of America’s greatest wealth-producing machine. Long one of the world’s elite colleges, Stanford, by the fall of 2008, had also become a noteworthy incubator of young entrepreneurial talent. For freshmen like Spiegel, cruising down Palm Drive past the majestic, 40-foot-tall Canary Island date-palm trees and beneath the white-on-cardinal WELCOME TO STANFORD banner, there was of course the eagerness and anticipation of living away from home for the first time, but there was also a sense that here, in this unique period in history, anything was possible. For a young man to complete his education and embark on a promising career was not only likely but a given; for a young man of Spiegel’s temperament and talent, to leave Stanford as anything less than a multimillionaire might even have been considered a disappointment. As it turned out, Spiegel would leave Stanford well on his way to becoming a billionaire, though the circumstances of Snapchat’s conception and launch would be the subject of a lawsuit, filed by former classmate Frank Reginald Brown IV, that has cost Spiegel friendships and could ultimately cost him hundreds of millions of dollars.

Silicon Valley has always embraced meritocracy, the idea that it is the quality of one’s ideas and one’s willingness to put in 20-hour days that make for successful start-ups and lasting businesses. Unlike, say, hustlers in Hollywood or on Wall Street, the founders of tech companies are supposedly monastic programmers who toil away in harmonious teams and remain chaste when it comes to fucking over their peers. If that myth has been eroded by the saga of Facebook, Mark Zuckerberg and the Winklevoss twins, as described in The Social Network, it is now being destroyed by the lawsuits that surround the founding of Snapchat.

Snapchat, a messaging service that allows for disappearing text messages and photos, has become the latest hottest internet start-up, an app that seems to have a significant grip on younger users. It enables users to send photos and messages to other users or to post photos and messages to their Snapchat network, with little risk that the photos will be circulated on the web because they self-destruct in 10 seconds. Although tech writers initially dismissed Snapchat as a “sexting app,” it is actually the first application to exploit what Spiegel calls the “value of the ephemeral.” Why, Spiegel has asked, should everything on the internet be around forever? “Data permanence is a big issue,” he says. “We were the first to understand that.” Teens and 20-somethings have embraced that ethos, making the app among the fastest-growing in history. According to the company, 400 million photos are sent daily; Facebook, by comparison, claims 350 million photos posted daily. The company became so successful so quickly that Spiegel turned down a $3 billion offer from Mark Zuckerberg and Facebook, calculating that Snapchat would eventually be worth even more.

The lawsuit in which Frank Reginald Brown claims, as originator of the idea and one of the founders of Snapchat, to be entitled to 33.3 percent of the company, proves that every tech company has not only its visionary founders, inspiring genesis story and long nights of programming but also its personality feuds and bitter battles that inevitably, it seems, end up in depositions and courtrooms. It happened at Facebook; it happened at Twitter, where co-founder Noah Glass was forced out of the company with virtually nothing to show for his contribution; and it is happening at Snapchat, where Spiegel has proved as ruthless and cunning as any of his tech forebears. The Snapchat story, as laid out in court filings, affidavits, depositions, recollections from college classmates and interviews with Spiegel before Brown’s lawsuit was filed, is the latest saga of just how fast and furious the journey can be from dorm-room dream to next big thing in today’s Silicon Valley.

“At Stanford and in Silicon Valley, we perpetuate the myth of meritocracy,” Spiegel said last April in a speech to the Stanford Women in Business organization. “We believe that the harder we work, the more we will achieve.… This is not true. I am a young, white, educated male. I got really, really lucky. And life isn’t fair. So if life isn’t fair, it’s not about working harder; it’s about working the system.”

1. Happier times: Reggie Brown, Bobby Murphy and Evan Spiegel celebrate the birth of Snapchat. 2. Where’s Reggie? Murphy and Spiegel (front row) celebrate the company’s first year. 3. CEO Spiegel during his deposition in response to Brown’s lawsuit. 4. Brown giving his deposition. 5. Who needs Silicon Valley? Stanford University finds itself an incubator for the tech world, attracting students less interested in degrees and more interested in launching billion-dollar start-ups.

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Incoming Stanford freshmen go through a weeklong orientation during which they meet classmates at barbecues and are told what will be expected of them academically by their assigned freshman advisors. Freshmen wear their names on lanyards, and for most of them this week is when they begin to understand the unique hierarchy they have joined. Although 70 percent of Stanford students receive financial aid—and those whose parents earn less than $100,000 pay no tuition at all—there are still plenty of scions of wealth and privilege to remind those less fortunate exactly what is to be gained from a good showing here. Spiegel, who grew up in a $4 million home in Pacific Palisades and whose father, Stanford alumnus and significant donor John Spiegel, earned $3 million a year as an attorney at the firm of Munger, Tolles & Olson, was among the latter. Six feet tall and lanky, with a rectangular head, fine, sharp features and a hank of brown hair parted down and to the left across his narrow forehead, Evan Spiegel had driven to college in his BMW 550i and stood out even among this spectacular cohort for his focus and ambition. “Evan was always hustling,” says one former classmate, “always looking to throw his energy into the next thing.”

Among his hall mates that freshman year was a stocky blond from Columbia, South Carolina named Frank Reginald Brown, whom everyone called Reggie. He and Spiegel quickly became friends. While Spiegel took a calculated approach to most aspects of college life—by the time he was a sophomore he already had the contacts to organize some of the best parties on campus and had been voted social chair of his fraternity—Brown was more laid-back, whiling away hours playing computer games and watching TV in his Donner Hall dorm room down the white-walled, gray-carpeted corridor from Spiegel’s. Spiegel was prone to wearing skinny jeans and a V-neck, while Brown tended to wear brightly colored khakis and backward baseball caps. Stanford prides itself on bringing together diverse elements of American society, and though both these boys were white and from privileged backgrounds, it was this meeting of two very different individuals that would catalyze the launch of Snapchat. Spiegel was a product-design major, which requires students to learn to conceive entire businesses, everything from the look and feel to the financing of a new product. The Institute of Design at Stanford, or “d.school” as it is known on campus, is a hothouse for future entrepreneurs and their start-ups. Brown, on the other hand, was an English major, which at Stanford is a far less gilded journey. In the new hierarchy at elite universities, it is the business, engineering and computer science geeks who are the cool kids potentially on the fast track to launching the next Google or Facebook, while English majors like Brown are on far more prosaic career paths and could even struggle for employment when they graduate. Despite their different paths, or perhaps because of them, the two became good friends, spending late nights in Spiegel’s one-room double, drinking vodka and Red Bull. Brown regaled Spiegel with tales of growing up in South Carolina, his whimsical ideas for potential new products for Spiegel to develop and his opinion of the many attractive coeds who caught his eye. The unlikely pair had a tenuous friendship from the start. “They fought and bickered like an old married couple, even during freshman year,” says a mutual friend.

In the spring of their freshman year the two pledged the Kappa Sigma fraternity, one of seven fraternities on campus and perhaps the hardest partying and among the most selective, accepting only about 10 percent of those who rush. That Spiegel and Brown rushed together is a testimony to the bond they had formed, for Kappa Sig tends to either take or reject incoming rushes as a group. Both were tapped, Brown making enough of an impression on his older fraternity brothers that he was awarded the blue suit traditionally given to the pledge expected to party the hardest. The suit, which has never been washed, has been passed down for longer than any brother can remember. Brown, as “Blue Suit,” was expected to wear the outfit to most frat parties.

Sophomore year, they lived together in the two-story columned Santa Fe–style Kappa Sig house on Campus Drive. Among their roommates was senior Bobby Murphy, a mathematical and computational science major from nearby El Cerrito. Murphy, like Spiegel, was well aware of the possibilities Stanford offered, and he was waiting for the right tech start-up to come along. In the meantime he was ready to offer his computer skills to brothers in need. “He was down the hall, and whenever I needed computer science help I’d go wake him up at, like, four in the morning,” Spiegel says.

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The culture of the start-up, of dreaming up the next big thing and then cashing in on your invention, was already part of the curriculum at Stanford’s business school, where Spiegel audited classes his freshman and sophomore years. Stanford Research Park, founded as Stanford Industrial Park in 1951, on Page Mill Road just off campus, is the crib of Silicon Valley. It is where William Hewlett and David Packard developed the audio oscillator that became the first product of Hewlett-Packard. Among the tech firms that have been started at Stanford or launched by Stanford alumni in the years since are Google, Sun Microsystems, Yahoo, LinkedIn and Cisco. While Spiegel was a junior, two Stanford grads launched Instagram, which Facebook acquired in 2012 for $1 billion. Under Stanford president John L. Hennessy, an electrical engineer and tech entrepreneur who sits on the boards of Google and Cisco, the college has become so intertwined with tech culture that Hennessy has been called the “godfather of Silicon Valley.”

For bright students like Spiegel, Hennessy had practically built a start-up assembly line. All Spiegel had to do was come up with an idea, find programmers to build it and then use his Stanford professors to introduce him to investors and venture capitalists. He was sitting in classes next to visiting tech moguls such as Eric Schmidt from Google and Chad Hurley from YouTube, was given a part-time job by Scott Cook, founder of Intuit, and was introduced to potential investors by professor Peter C. Wendell, founder of Sierra Ventures. It was inevitable Spiegel would launch his own business, and by the end of sophomore year he believed he had found the next big thing, starting FutureFreshman.com, a college guidance and application website, along with math wiz Murphy.

“We had identified the problem that kids and parents didn’t know what to do in applying for college. We had this thing where you could click on which schools you wanted to apply to, and it made you a massive to-do list,” Spiegel says. “But nobody used it. Still, we learned a lot about what not to do.” Spiegel designed the website and Murphy built it. Working on the project over a summer, both realized two important truths about start-ups: Don’t get into a space where well-funded competitors (in this case a website called Naviance.com) could outspend you into oblivion, and make sure your idea is truly disruptive—a new idea, not just another good idea. The idea has to be killer, or no matter how well designed the product (and Spiegel still believes FutureFreshman.com was an impeccably designed website), the business will die.

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Brown spent the fall of 2010 in Oxford, U.K., while Spiegel went to Cape Town, South Africa—typical of Stanford juniors, who often spend at least one quarter abroad. Spiegel had visited Cape Town before, helping locals get jobs by teaching them how to dress and how to conduct themselves during interviews. When he returned during his junior year at Stanford, he realized that the jobs he had helped the young men from one township secure had come at the expense of young men from another township. “I hadn’t created jobs; I simply took jobs from students in other townships and gave them to mine. I was devastated.” Life, Spiegel realized, wasn’t fair.

While Brown and Spiegel were abroad, their fraternity had been kicked off campus for one year for serving alcohol during a dry week. Brown and Spiegel returned to the dorms, this time on the same floor of Kimball Hall, and the two took up their friendship where they had left off, frequently dropping by each other’s rooms or hanging out with fraternity brothers. Spiegel was increasingly frustrated, worried that his time at Stanford was coming to a close and he had yet to come up with a killer idea. Meanwhile, the tech world had changed, and many promising new start-ups were now built around mobile applications instead of websites—Instagram being a prime example. Apple’s iPhone 4 had further changed the tech industry, putting phones with front-facing cameras in everyone’s pocket and demanding more user time than computers. Spiegel knew from his d.school classes that venture capitalists were looking for mobile apps that capitalized on this new technology, but he had yet to come up with a product he felt passionate enough about to develop.

One afternoon in April 2011, Brown was hanging out in a Kimball dorm room with two frat brothers. The three were watching television when Brown began to lament that he had sent a provocative photo of himself to a female acquaintance and now wished he could somehow unsend it. In fact, he observed, it would be awesome if you could do that with photos and sexy text messages. Or how about making any message or photo disappear?

“That could be a cool app,” Brown said.

He paused, waiting to see how the idea played in the room. The other brothers, not seeing the potential, dismissed it as a sexting app. “Brown ran out of my room after he thought he had struck gold and went to Spiegel,” says a fellow member of Kappa Sigma. “He just knew Spiegel would take him seriously and move forward.”

Brown found Spiegel in his room and told him the idea, which Spiegel, according to Brown, exclaimed was a “million-dollar idea.” Spiegel excitedly asked Brown if they could work on the project together, and Brown agreed. The two set off to seek a fraternity brother who could program the app. They recruited Spiegel’s former partner Murphy to join them and, in an “explicit oral agreement,” divided the venture into thirds, according to the complaint Brown filed in February 2013. Brown was to be chief marketing officer, Murphy chief technology officer and Spiegel chief executive officer. Why did Spiegel automatically take the preeminent role even though, as he acknowledges, the idea wasn’t his? Because Brown was an English major and therefore didn’t add as much value as a product-design major like Spiegel, who had already started and failed at one business. Spiegel has said in his own depositions that Brown was eager to participate so he could learn from Spiegel. In Stanford’s culture, the humanities have been undervalued in the face of supposedly more practical majors such as computer science and engineering, something even university president Hennessy has lamented. This may be the ultimate expression of the new hierarchy: An English major, it goes without saying, is not qualified to be CEO, even if the whole damn thing was his idea.

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Brown’s idea was the seed for one of the fastest-growing companies in tech history. The app’s usage expanded from a small group of high schoolers in Orange County, California—the school Spiegel’s cousin attended turned out to be a key catalyst—to virtually every teen in America. While Instagram and Facebook tap people’s vanity by offering them “likes” and “hearts” on their best photos, Snapchat taps their insecurity by offering them the freedom to send a picture they know will self-erase in a few seconds. And while Facebook and Instagram allow for the passive posting of photos, Snapchat allows users to push photos to whomever they like. “Our application makes communication a lot more human and natural,” says Spiegel. “Our goal is to make communication fun again.” That mantra seems to be working, as the company has gone from 40,000 users in February 2012 to more than 26 million U.S. users today, according to a Pew Research Center study. “Snapchat stopped being just an app and turned into a culture, a phenomenon,” writes Chloe Drimal, a Yale senior, in a Yale Daily News op-ed. “It’s basically Twitter combined with texting combined with crack. Twitter gives you 140 characters to say your thought or what you are currently doing; Snapchat gives you 31. A text is permanent; a Snapchat is gone within 10 seconds.” In many ways Facebook has become too grown-up, too neat and tidy; Snapchat is where kids can go to goof off.

By the time Snapchat added video capabilities in December 2012, the rest of the tech industry was playing catch-up. Facebook scrambled to launch its version of Snapchat, called Poke. The project was built by Facebook engineers in just 12 days, with no less than CEO Mark Zuckerberg writing code and serving as the voice for the “Poke” notification. Spiegel retorted to Zuckerberg’s panicked response with “Welcome, Facebook. Seriously,” an homage to a 1981 Apple ad challenging IBM. “The idea of sharing your life in snippets of video has been transformative,” says Yosef Solomon, a digital-marketing strategist. “The growth potential is based on Snapchat going from a mobile chat platform to a mobile social platform.”

The great remaining question is just how much Snapchat is worth. Despite its remarkable growth, the company has no proven business plan to rake in revenue. Twitter went public in November with an $18 billion valuation, but financial analysts have since downgraded its stock, even with a market cap of about $30 billion. Snapchat’s last round of investment, in June 2013, from several venture capital firms, valued the company at $800 million. (Spiegel personally extracted $10 million.) Zuckerberg’s $3 billion offer in November established the current baseline valuation. Not bad for a company with 30-some employees.

For Stanford students Brown, Spiegel and Murphy, launching a multibillion-dollar tech firm should have been the modern equivalent of now-obsolete collegiate dreams: Write a novel before you graduate, get your band signed to a record deal or—who knows?—win a Heisman trophy. Snapchat is the latest proof that, if you are at the right school at the right time, you can indeed form a company and get no-worries wealthy before you can legally drink. That’s why it is so tragic that Brown and Spiegel would never share in their success.

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Pacific Palisades in summer has a surprisingly conducive climate for getting work done. The beachfront community of multimillion-dollar homes goes through an extended stretch of what locals call “June gloom,” during which the days can remain overcast until midafternoon. For the three would-be tech moguls, who were staying at Spiegel’s father’s Toyopa Drive mansion (which Spiegel nicknamed “startuphau5”), the climate was perfect for long days spent programming their app, building the design and figuring out how to launch what they were then calling Picaboo. At this stage, before they had a product to sell, Spiegel and Murphy made tangible contributions—they were, after all, writing the code that would become the application—while Brown availed himself of the free food and beer provided by Spiegel. However, Brown made undeniable contributions even during this period, including coming up with the “Ghostface Chillah” logo. Brown directed Spiegel as he used Adobe In-Design to draw the logo. (Snapchat still uses a version of that logo.) Brown also began to draw up the terms of service, privacy policy, frequently asked questions and the potential offering language for the application in the iTunes store. According to court documents, Brown also came up with the name of the limited-liability corporation that became Snapchat’s parent company, and in conversation all three agreed they would be equal partners in the venture. For now, however, the application was being developed under the aegis of Spiegel and Murphy’s Future Freshman LLC, their old, failed start-up. This was, Brown believed, a technicality, and the fact that he had zero percent equity in his frat brothers’ old business was irrelevant. At this point Murphy, in his communications with frat brothers about the new application, described it as the product of “Bobby, Evan, Reggie.”

That would be the summer of Snapchat, what should have been remembered by all three men in their golden years as a magical season when they created an application that would literally change the world and that, for those few weeks, was known only to the three of them. To be young and so promising, and to sense and believe you are on the cusp of a transformative invention, to be working 15-hour days in harness to this dream and to actually be on the verge of realizing it—the application went live on iTunes on July 8, 2011—should have engendered generosity and fraternal love instead of what apparently came to pass: a betrayal, according to Brown, and disappointment in a friend, according to Spiegel.

By August, Brown had returned to Columbia, South Carolina, believing he was equal partner in the app, which he had, after all, conceived. While there, he began to write the patent application for Picaboo, because Spiegel was increasingly worried that another tech company could steal the idea. Brown put Murphy’s name first in the patent application, followed by his own and then Spiegel’s, an order that offended Spiegel. (The order of names on a patent application does not denote relative credit for the invention.) Spiegel expressed his anger by insisting that Brown speed up the patent process, an impossible task. Brown, sensing that Spiegel was becoming more distant, felt he needed to confirm the equity arrangement in their new business. He asked Spiegel if they could have a three-way call on August 16, 2011. Spiegel alerted Murphy, telling him, “Reggie wants to discuss equity.”

Spiegel took the call from his bedroom, which his father had allowed him to renovate to his specifications with a white-leather king-size bed. Murphy was by the pool. Brown reiterated his understanding that he was an equal equity partner in the business, and he listed his many contributions. “He claimed that he had created the original idea,” Murphy said in a legal deposition. “He had designed the ghost. And there were some disagreements about what that meant.”

At one point in the conversation Brown said to Spiegel, “I directed your talents.”

Spiegel and Murphy then changed the passwords on Snapchat’s computer servers and accounts. They never spoke with Brown again.

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Spiegel has by now written Brown out of the Snapchat genesis story, describing his first phone call with Murphy as the moment of inception, the moment he wanted to transform Future Freshman into “an app that would let people send photos that would disappear.… We had no idea that what we now know as ephemeral media would change the communication landscape. We just thought it might be cool to make photos disappear.” In this alternative history, Snapchat is presented as the next in line of Future Freshman’s products. In interviews, when pressed, Spiegel has gone so far as to say that a “friend” came to him with an idea, yet he refuses to acknowledge that as the foundational moment. It was his and Murphy’s work writing the code and designing the product that was the true inspiration. In depositions Spiegel says Brown was working at Spiegel’s father’s house that summer in exchange for room and board and the valuable business experience gained at Spiegel’s knee. Brown, after all, couldn’t read computer code, so what value could he possibly have added?

Yet Brown’s attorneys, in questioning Spiegel, have asked him, “Did you come up with the idea for deleting picture messages?”

“Uh, no.”

“Did Bobby come up with the idea?”

“No, he did not.”

“Who came up with the idea?”

Spiegel answered, “Reggie did.”

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Spiegel never graduated, but Brown did and has started business school at Duke University’s Fuqua School of Business—never again will he be a mere English major. Spiegel has proven to be, in accordance with his worldview, very adept at “working the system” and now presides over the company viewed as the gravest threat to Facebook and Twitter and the best bet to be the next great social-networking empire. But amid recent criticism that he too cavalierly responded to a security breach in which more than 4 million user names and phone numbers were publicly posted, some question how skillfully he can play the CEO game if and when Snapchat goes public. He seems to have calculated every angle, including this one: Even a large settlement or adverse ruling that awards Brown hundreds of millions of dollars—perhaps the worst-case scenario in the event Spiegel loses in court—is still far less valuable than 33 percent of Snapchat.

Stanford University has become, if possible, even more start-up obsessed since Snapchat began its meteoric rise. Computer science became the school’s most popular major during Spiegel and Brown’s final year, and the number of computer science majors and students enrolled in introductory computer science classes has risen since then. In the summer of 2013, to better harness the value of its own offspring, the university announced it would invest in students’ start-ups like a venture capital firm, through its incubator StartX.

If three frat brothers could work the system and create a business worth billions in a matter of months, then there must be more billion-dollar apples to be plucked on Stanford’s verdant campus. If only, incoming freshmen think as they drive up Palm Drive, they can find the right idea.